CEO Wessel van Zyl says a number of macro factors impacted the operating environment leading to lower revenue, including project delays in the run-up to the local elections. He explains that profits nonetheless increased mainly due to improved productivity at Kusile following the introduction of a night shift.
The group was forced to deploy additional resources to the Northern Aqueduct project in an endeavour to expedite the redress of quality issues and conclude the work. These additional ad hoc costs constrained bottom line growth. Repair work is due to be completed in December this year and insurance claims have been submitted given the failure by the original quality assurance contractor to identify these quality issues on inspection.
By division, Esor Construction continued to face tough tender and contracting competition in a fraught market. The division maintained market share in pipejacking, but felt the impact on the revenue line. Anchor projects at Kusile continued to perform profitably. Package 25 is nearing completion and all claims on this package have been successfully resolved.
Esor Developments progressed well during the period with all housing projects on track. The Orchards housing project will be ready for proclamation and registration in January 2017; Khayelitsha is awaiting land registration and Uitvlugt is in the final stages of township planning. All environmental issues at Diepsloot have been resolved and infrastructure work is expected to kick-off before financial year-end in February 2017.
The group’s African projects also fared well. The Swaziland canal upgrade contract is nearing completion and a number of smaller piling contracts were successfully concluded in Zimbabwe.
The integration of Tuboseal into the Construction division is progressing well. “This acquisition not only complements our existing pipeline business but extends our niche capability and offers a footprint in the Western Cape from which to grow our presence in the region,” says van Zyl. Tuboseal provides pipeline rehabilitation, pipe cracking, ‘cured-in-place pipe’ (CIPP), slip lining and patchlining, CCTV inspection, robotic cutting and joint sealing.
Strategic investor Geomer Investment has increased its shareholding to 42,46%, triggering a mandatory offer to shareholders which closes on 23 December 2016. “We had been engaging with Geomer previously on possible synergies in water and sanitation and believe their increased involvement will prove beneficial to Esor’s growth prospects,” says van Zyl.
Going forward he does not expect the challenging local market conditions to abate in the short term and says the group is targeting specific work outside of South Africa for growth. “Africa and specifically SADC offer us solid prospects with projects currently underway in Botswana, Zimbabwe and Swaziland and the possibility of additional work.” While work on hand is down marginally to R1,4 billion there are a number of outstanding imminent awards that could boost the order book to R2,5 billion.
Esor shares closed yesterday at R0,37.
JSE civils and construction group, Esor, continued its profitability momentum for a third successive period with profit up 21,7% to R7,5 million for the six months to August 2016. Streamlining the group into two core divisions - Esor Construction and Esor Developments - with further geographical focus areas enabled management to better capitalise on opportunities. Post period-end on 1 September, Esor acquired the specialist trenchless pipeline rehabilitation business from Tuboseal Services (Pty) Ltd, expanding its niche pipeline services and national footprint.